WORLD-WIDE INDUSTRIES Alice Baxter recently joined the supply department of World-Wide Industries (WWI). Alice had been

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WORLD-WIDE INDUSTRIES
Alice Baxter recently joined the supply department of World-Wide
Industries (WWI). Alice had been a supply manager in a machine shop
in the nearby town of Clarence. While at the machine shop, she
completed her MBA degree with a major in supply chain management.
Her new job with WWI resulted in a handsome increase in salary and
a great potential for promotion. Alice’s first assignment at WWI
was supply manager for all purchased components for WWI’s line of
power mowers. Alice’s new boss and the individual responsible for
hiring her was Gayton Hackman, the supply manager.
Alice received as her first major buying assignment the purchase
of a metal housing for a 19-inch power mower. Her previous
experience had given her a familiarity with drawings and
specifications, particularly as they were related to sheet metal
work. She was not disturbed at all by the magnitude of the
assignment. It involved not only a high-priced assembly, but also a
major investment in tools. Alice requested advice from Mr. Hackman
as to those sources that could fabricate the housing at low cost.
Mr. Hackman gave her the names, addresses, and contacts for four
companies currently in the business of manufacturing this type of
product, and recommended that they be sent drawings and
specifications.
On receipt of the drawings, all the potential suppliers visited
Miss Baxter to make sure that all the details were understood and
to offer helpful suggestions as to ways in which the housing could
be made at a lower cost. In the meetings that ensued, both Miss
Baxter and Mr. Hackman discussed the details with the suppliers and
the design engineer. At that time it was pointed out very clearly
by Miss Baxter that this housing purchase was highly competitive,
that other sources were also quoting on the same drawings and
specifications, and that the power mower was a low-profit-margin
item. Accordingly, the company was forced to make every conceivable
effort by negotiation of design and price to purchase the housing
at the rock-bottom price. She also pointed out that there would be
substantial volume over a period of twelve to eighteen months,
which should make the business very attractive. In a few days
following these separate meetings, quotations were received from
the suppliers. Miss Baxter carefully reviewed them, with the
resultant determination on her part to place the business with the
lowest bidder who apparently would meet all the drawing and
specification requirements. The low bidder, the Troy Iron Works,
quoted $19.56. The next lowest bidder, the Tipton Machine Company,
quoted $19.80. The other two companies were over $21.00 and were
not given any consideration by Miss Baxter.
In the course of a discussion about the placement of this
business, Miss Baxter was quite surprised to find that Mr. Hackman
did not consider that the business was ready for placement. He
contended that the price of $19.56 was too high, and that the
business should really be placed with the Tipton Machine Company.
Miss Baxter argued with Mr. Hackman that, inasmuch as the suppliers
had been told that they must bid at the lowest possible price, they
had negotiated out all of the design features possible. The price
must be right. She saw no reason for procrastination or further
discussion. Mr. Hack-man, on the other hand, calmly stated that
they were now in a position for the first time really to negotiate
the purchase and that Miss Baxter should go back to the low bidders
and tell them that their prices were too high and that they should
submit new quotations. Miss Baxter stated that she was of the
opinion that this was unfair to the Troy Iron Works. She felt the
quotations were already based on the suppliers making a fair profit
and that such a quotation might injure their opportunity to
negotiate further business with these suppliers. Mr. Hackman agreed
that any company that does not receive the business is apt to be
unhappy
regardless of the circumstances, but he would not agree that the
question of profit should concern the buying firm. After all, no
consideration was being given to the profitability of the power
mower, which had already been clearly defined as marginal.
Mr. Hackman further explained to Miss Baxter that it was highly
desirable for the business to be placed with the Tipton Machine
Company as the Troy Iron Works was already making all the other
mower housings. Unless the company provided some split of the
business, it would lose its negotiating effectiveness for future
business (it being accepted by the suppliers that no one but the
Troy Iron Works could get business from World-Wide Industries). Mr.
Hackman further explained that the company was not in a position to
pay Tipton more than Troy and that the negotiations should be
conducted to ensure not only that Tipton Machine Company received
the business but that it was the low bidder. The degree of
determination on the part of Mr. Hackman that this must be true,
and the lack of acceptance by Miss Baxter of the fact that it
either could or should be done, resulted in Mr. Hackman taking over
the completion of the negotiations with both the Troy and Tipton
companies.
The net result of this second-look negotiation was that the
business was placed with the Tipton Machine Company at a price of
$18.60. The initial and revised bids are as follows:
Initial bid
Troy Iron Works $19.56 Tipton Machine Co. $19.80
Second bid
$18.75 $18.60
Change
–$0.81 –$1.20
costs could disturbed.
1.
2. 3.
4. 5.
be taken out of the part, and supplier relations had apparently
not been damaged or
Why was Mr. Hackman able to reduce the price? How did he know
that a reduction was possible?
Did Mr. Hackman treat Miss Baxter fairly?
Can this type of buying approach be broadly applied to all
commodities and industries?
Do you believe that either Miss Baxter or Mr. Hackman was right
in disregarding the high initial bids submitted by the third and
fourth companies?
Were supplier relations damaged or disturbed?